Regional Specialists Review May 2016
The fear triggers of just a few short months ago seem all but forgotten. Oil prices have risen, China's currency has stabilized amidst some government stimulus, and the Federal Reserve seems firmly in control of interest rate policy, with even strong hints of increases ahead finding few naysayers. As a result, markets, too, are better behaved since the dark days of January/February.
As others are exhaling, though, we're lifting our antennae a bit higher. We're picking up hints of some moderation in U.S. housing and even U.S. labor markets. While they're very faint, and not suggesting an imminent recession, they're key to our efforts to look ahead. Further, we believe the falling earnings we've seen since late 2014 need to see a reversal, perhaps fueled by falling commodity prices. Otherwise the increases in stock prices that drove small caps and mid caps, in particular, to very dear levels, in our judgment, will be hard to stomach.